A major rule change for RGGI auctions kicks in January 1, 2014, and it will increase auction revenues five to eight fold by 2017. The higher cost will show up in electric bills in nine northeast states. These states already have industrial electricity costs 30 to 96% higher than the average state making it hard to compete for job growth. This will add $40 a year to residential customer bills but could add $1 million a year to some large industrial companies. RGGI states have also seen generation capacity drop 9%.               The regional cap and trade program began in 2007 with ten states agreeing to reduce carbon dioxide emissions from power plants by 10% by 2018. Power plants in these states would need to buy permits in quarterly auctions for each ton of emissions. Each state had an allotment of permits roughly equal to their average emissions between 2002 and 2006. The full permit allotment was to be auctioned through 2014 followed by a cut back of 2.5% a year through 2018. The cost of the permits is passed on to electric distributors who pass the cost on in electric bills. The auctions are run by RGGI, Inc. which receives 10% of the proceeds. RGGI allotments, goals, and emissions by state are shown in Table 1.   Table 1 Regional Cap and Trade Data by State             M tons M tons M tons M tons   M tons   State RGGI Budget RGGI 2019 Target RGGI Reduction 2009 Emissions % Reduction 2011 Emissions % Reduction DE 7,560                       6,804                         756 4,143 45% 3,928 48% CT 10,696                       9,626                     1,070 8,046 25% 8,196 23% MA 26,660                    23,994                     2,666 19,683 26%             16,404 38% MD 37,504                    33,754                     3,750 25,659 32%             23,625 37% ME 5,949                       5,354                         595 4,714 21%               4,351 27% NH 8,620                       7,758                         862 5,507 36%               5,127 41% NY 64,311                    57,880                     6,431 38,330 40%             37,256 42% RI 2,659                       2,393                         266 3,181 -20%               3,595 -35% VT 1,226                       1,103                         123 7 99%                    24 98% Total          165,185                  148,667                   16,519 109,270 34% 102,506 38%                 Auctions began in September 2008 and prices ranged from $3.00 to $3.50 for the first year. Prices collapsed to the $1.86/ton reserve price starting in September, 2009 as emissions had dropped by 34% in 2009 and permit supply was abundant. The recession played a minor role but cheap natural gas led to fuel switching from coal, and federal and state regulations requiring lower sulpher dioxide and mercury emissions led to the closing of older, smaller coal fired power plants. New Jersey pulled out of RGGI in 2011 putting further downward pressure on prices as speculators left the market. With the effects of the recession behind us, CO2 emissions fell another 4% by 2012. We estimate the 38% reduction in emissions by 2012 was caused two thirds by fuel switching and one third by coal plant closings with essentially none of that impacted by RGGI itself.               We can compare changes in electric generation by fuel in the nine state RGGI group to the rest of the country (Table 2). In both cases high carbon content coal and petroleum fired generation declined replaced by low carbon natural gas and wind power. A major difference is the nine RGGI states lost 9% of its generation capacity while the rest of the country grew by 3%. The RGGI states now import 8% of their power at a price premium instead of being balanced with generation and use (Table 3).   Table 2: Major Fuel Mix Changes 2004 to 2012 in million MWh Fuel RGGI States Rest of US Coal -50 -389 Petroleum -37 -61 Natural Gas 55 461 Wind  5 122 Net change in generation -28 108     Table 3: Electric Generation vs. Use by state 2010 MWh x1000 State Generation Use % Generated DE 5,628 11,606 48% CT 33,350 30,392 110% MA 42,805 57,123 75% MD 43,607 65,335 67% ME 17,019 11,532 148% NH 22,196 10,890 204% NY 136,962 144,624 95% RI 7,739 7,799 99% VT 6,630 5,595 118% Total 315,926 344,896 92%                       Two additional major coal plants and one nuclear plant are scheduled to close soon. The US Energy Information Agency just released an article this week with concerns the northeast is losing fuel diversity by depending so much on natural gas (44% of electricity supply in 2012). The northeast has also expanded the direct use of natural gas in homes and businesses for heat, hot water, and industrial use. There is insufficient natural gas transmission pipeline infrastructure to serve the rapidly expanded use of gas and there may be shortages this winter.               RGGI, Inc. announced a major change to the auction plan in February, 2013, to be effective January 1, 2014. The 10% reduction goal would be increased to 45% with an additional 10% reduction by 2020. There will be a Cost Containment Reserve of allowances to be released if auction prices exceed a cap equaling $4 in 2014, $6 in 2015, $8 in 2016, $10 in 2017, and then rising 2.5% a year thereafter. The change will increase revenue from $168 million in 2012 to $1,032 million by 2017. Revenue changes by state are listed in Table 4.   Table 4: RGGI Revenue Forecast by State by Year $ Millions State 2012 2013(3 Qtrs. Annualized) 2017 Est. DE 5.8 16.7 39 CT 11.4 29.7 82 MA 28.5 73.3 164 MD 38.8 107.9 237 ME 5.5 13.9 44 NH 7.7 19.7 51 NY 65.7 172.1 373 RI 2.9 5.5 36 VT 1.3 3.3 6 Total